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How To Invest In Big Data

This article is more than 8 years old.

Data is getting big by the day. Very big.

According to IBM 2.5 quintillion bytes of data are created every day.

A good chunk of this data is generated by what has come to be known as the Internet of Things (IOT)-- connected devices like smartphones, tablets, vehicles, and appliances. That’s expected to be a $1.9 billion market by 2020, according to Gartner.

IBM further estimates that 90 percent of all data generated by IOT is never analyzed or utilized in business decision processes. As much as 60 percent of this data begins to lose value within milliseconds of being generated.

Another good chunk of data is generated by conventional Internet surfing. Apparently, there are two market segments here  -- an emerging market in mining and monetizing IOT big data, and a conventional market in mining and monetizing big data for traditional Internet surfing.

How can investors invest in this market?

One strategy is to buy shares in companies that stand to benefit from both market segments, like health care providers and retailers who can use this data for customer profiling.

In an interview with Fidelity Viewpoints  Osman Ali -- managing director and senior portfolio manager in Goldman Sachs' Quantitative Investment Strategies team -- likes three companies; Amazon, Google and Visa.

“The biggest retailer in the world, Amazon (AMZN), can sometimes anticipate what I want to buy even before I realize it myself, based on analysis of my own spending patterns and individuals who they think are similar. Google’s (GOOG) Gmail is another good example of a service that is analyzing lots of information about people, and how they use e-mail, to better understand them and to tailor advertising more efficiently. Visa (V) looks at vast quantities of credit card transactional data to identify typical consumer behavior to help stop fraudulent purchases before they are even approved.”

Company

Forward PE

Operating Margins

Qtrly Revenue Growth

Amazon

102.57

0.80%

19.90%

Google

17.56

25.53

11.10

Visa

22.79

64.92

11.50

IBM

8.83

21.01

-13.40

Source: Yahoo.finance

Then, too, there are the companies that provide a platform to help other companies mine and monetize big data. The best candidate here is IBM, which has the tools— specifically, the cloud and the analytics capabilities.

To be fair, IBM isn’t the only big player in this market. So is Amazon, GoogleMicrosoft, and others.

But IBM's ahead of the competition when it comes to “bundling” these capabilities. And it has already invested a great deal in partnerships to help create its own ecosystem in big data management.

Most notably, IBM is opening Watson to the world -- making its APIs available to developers, entrepreneurs and businesses.

Some of these early partnerships have already begun to effect IBM’s top line. In the first quarter of 2015, for instance, IBM’s strategic imperatives (Cloud, Mobile, Social, Analytics, Security) revenue grew 30%, and is expected to grow to $40b by 2018).

That has certainly helped the company replace revenues from declining business, but apparently not fast enough to turn things around.

That’s why investing in IBM shares is for long-term investors.